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The Hungarian part of the landmark Chinese rail project linking Budapest with Serbia’s capital Belgrade will be opened for public tender, Hungarian Foreign Minister Péter Szijjártó said on Sunday.

The announcement comes ahead of Tuesday’s annual meeting between China and Central and Eastern European countries (CEE) in Budapest and follows an investigation by the European Union into the US$2.89bn rail project that has been agreed to be financed and built by China.

The European Commission said in February that it was investigating whether Hungary was complying with EU procurement rules, which require public tenders for large transport projects.

Szijjártó told a press conference in Budapest that the procurement tender for the renovation of the Hungarian section of the Budapest-Belgrade railway would be published on the official site of the Hungarian Railways (MAV) on Monday.

He said the value of the modernisation of the Hungarian part of the 350km rail link stands at 550 billion florints (US$2.1bn), 85 percent of which will be financed with a 20-year loan from the Export-Import Bank of China.

“With this investment, the railway line between Budapest and Belgrade will provide the most competitive alternative to Chinese goods compared to other railways”, Szijjártó said.

According to the Hungarian foreign minister, construction on the rail link could start in late 2020 after the tendering, planning and licensing processes have been completed.

Key Silk Road rail project in Europe

By launching the public tender, Budapest is seeking to abide by EU rules in a bid to secure a key rail project that carries economic and diplomatic significance to both Hungary and China.

The project, which aims to cut travel between Budapest and Belgrade from eight hours to three, was initially agreed upon by Hungary, Serbia and China at the second China-CEE meeting in 2013.

In November 2015, Hungary and China signed a bilateral treaty that names state-owned China Railway International Corporation and the Export-Import Bank of China as the project’s contractor and financier while Hungarian State Railway should implement it.

The Hungary-Serbia rail link is a showcase for Chinese rail expertise in Europe and part of the US$900bn Belt and Road initiative (OBOR) proposed by President Xi Jinping for boosting trade through infrastructure investments from across Asia to Europe and Africa.

It is also part of so called Land Sea Express Route that runs from the Chinese-owned port of Piraeus in Greece through Macedonia and Serbia to Hungary.

"If the project couldn’t be carried out, it would definitely cause losses on both sides. China really wants to push this project as a part of its OBOR initiative and hopes to have economic benefits from it as soon as possible, while Hungary has always wanted to be a gate and a bridgehead for China to the whole EU," Ágnes Szunomár, a China expert and research fellow at the Institute of World Economics in Budapest, told gbtimes in February.

The EU probe has not prevented the rail project from moving forward in Serbia, which is not an EU member state.

Serbia’s Minister of Construction, Transport and Infrastructure Zorana Mihajlovic said in August that Serbia and China had signed all the necessary contracts and that construction of the Serbian part would begin by November’s China-CEE summit.

More investment deals will be announced at the annual meeting, which was initiated by China to expand its cooperation with 11 EU member states and 5 Balkan countries, including Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, and Macedonia.

While many central and eastern European countries welcome Chinese money for much-needed infrastructure investments, diplomats in Brussels and some Western European capitals are concerned that Beijing’s increased cooperation with countries in the region could undermine EU rules and unity.